After a stunning run-up that saw its price jump over 24,000% in a single year, Dogecoin's (DOGE 0.77%) value is now down about 48% from its all-time highs last month. Investors went into a speculative run-up after the founder and CEO of Tesla, Elon Musk (colloquially known as "the doge father"), publicly announced his investment in the meme currency.
Unfortunately, Dogecoin's poor economics makes it a terrible investment from all angles. Most important of all, there are no caps on the coin's supply. There are 129.7 billion Dogecoins outstanding, with 5 billion more created out of thin air each year. What's more, 13 wallets control as much as 50% of the coin's circulating supply, making its price extremely susceptible to manipulation and pump-and-dump schemes.
Dogecoin and other cryptocurrencies recently went into a significant bear market with no end to the sell-off in sight -- aside from bull traps. The stock market has mostly been untouched by this latest bursting of a digital currency speculative bubble.
Let's look at two stocks set to outperform this year for more sound financial reasons that you can catch the tails of instead.
Image source: Getty Images.
1. AMC Entertainment
AMC Entertainment Holdings' (AMC) stock fell into oblivion last year as the coronavirus pandemic forced the iconic theater brand to close nearly all of its locations at one point or the other in 2020. Even in the first quarter of 2021, when many of the company's theaters had reopened at reduced capacity, its revenue was still off by 84.2% year over year.
The prevailing idea in the investment community right now is that AMC Entertainment will see its sales and earnings rebound sharply once the pandemic ends. Before the pandemic started, AMC's theaters saw more than 60 million attendances per quarter worldwide (including multiple viewings), so there is definitely a lot of demand out there. Keep in mind that its market cap stands at only $6.19 billion, which is very low compared to its potential to recapture the billions of dollars in revenue it had before the pandemic.
It's even possible that these positive estimates might be too conservative. As the pandemic made its way across the country, producers and film studios began delaying the production and release of their movies until things go back to normal, thus creating a massive backlog of films ready for release.
Indeed, new films from blockbuster franchise-level properties such as Avatar, Dungeons & Dragons, Ghostbusters, Halloween, Kingsman, The Matrix, Minecraft, Mission: Impossible, Tomb Raider, as well as several new offerings from the comic book universes of DC and Marvel are all scheduled to be released by the end of 2022. Until this long list finally hits the big screen, AMC has more than $1 billion in total liquidity to maintain its operations.
It is true that AMC has tough challenges ahead and some doubters wonder if the company can sustain its growth potential for the long term. After all, AMC's debt balance has ballooned to $5.5 billion, so there's a lot at stake if it fails to turn things around. But the big picture is that the country's domestic box office has remained steady in the face of competition from streaming services. From 2009 to 2019, theater chains brought in roughly $10 billion per year in revenue, with AMC getting a big slice of the pie. Keep in mind that's only from ticket revenue and does not include money made from concessions (food & beverages).
Although the volume of ticket sales fell, the price of each ticket has gone up -- and that's not necessarily a bad thing. Compared to two decades ago, AMC's theaters now come with IMAX screens, dine-in restaurants, recliner seating, pubs and grill, and freestyle machines, etc. It makes sense that the company charges more as its the value of entertainment provided goes up.
Most consumers would not mind either as theater chains like AMC are increasingly becoming integrated entertainment facilities. It's not just about buying a ticket and seeing a movie, but the experience of enjoying the theater with family and friends. Due to its sheer size and available capital, AMC can capitalize off the change in consumer behavior far better than lesser-known theater chains. For these reasons, this is one of the top undervalued entertainment stocks to buy now.
2. Amazon
During the first quarter of 2021, e-commerce conglomerate Amazon (AMZN -1.65%) increased its sales 44% year over year to $105.8 billion. Simultaneously, its cash flow increased by 69% to $67.2 billion. With these positive results, one would think that Amazon stock would trade at a substantial premium.
That is far from the case; in fact, Amazon stock trades at only four times revenue, which is lower than the average e-commerce stock's valuation of 4.5 times sales.
Many investors think that, like all blue-chip stocks, Amazon's growth will stall once it captures a significant portion of the overall market. Luckily, Amazon's executives see this issue as well. The company is making a massive entry into the $10 trillion global healthcare industry to sustain its momentum.
Amazon is leveraging its existing infrastructure for the rollout of Amazon Pharmacy. Under the new business segment, Prime members can receive free delivery on their medications within two days from over 60,000 pharmacies nationwide. The company accepts most insurance plans, and uninsured people can receive up to an 80% discount on generic drugs and a 40% discount on branded drugs when paying cash.
On top of that, it is launching Amazon Care to provide enterprise telehealth solutions. The plan offers employees 24/7/365 access to primary and urgent virtual care. The service synergizes well with Amazon Pharmacy; doctors can send a prescription directly to the former for fulfillment after each visit.
But healthcare is not the only sector Amazon seeks to tackle. Reports were published that Amazon is close to finalizing the acquisition of MGM Studios for approximately $9 billion. The acquisition would add a significant amount of intellectual property (including the James Bond films) that could be used to bolster its Amazon Prime streaming service and help it compete in that market. It would be the second-largest acquisition after buying Whole Foods for $13.7 billion in 2017.
Investors should start to see that Amazon is rapidly diversifying from e-commerce and into a conglomerate-as-a-service model. That is, members can access groceries, shop online for retail items, watch Amazon-directed films & TV shows, access healthcare services, and more, all via an affordable monthly Prime subscription. For its ability to sustain its momentum, Amazon stock is a screaming buy at current levels.
